Mayor's Office Press Release

October 24, 2016 -- Mayor Sylvester Turner announced today that all three City employee pensions systems have now signed off on previously announced pension reforms that will immediately reduce by more than 30 percent and then later eliminate $7.8 billion in unfunded pension debt.  The announcement clears the way for what the mayor hopes will be a strong vote of support from City Council on Wednesday.

“This is a special moment for the City because it represents the first time ever that all three pension systems have come to the table and worked in a productive manner,” said Mayor Turner.  “Everyone is on the same page, and we are moving forward as a united front. We’ve all known there would have to be changes.  I wish it had happened 15 years ago.  It did not; so it is up to us to make it happen.  This plan takes the issue off the table for good.”  

Historic in scope, the proposal endorsed by the Houston Firefighters’ Relief and Retirement Fund, the Houston Police Officers’ Pension System and the Houston Municipal Employees Pension System provides stable and sustainable defined benefit plans for City employees while also keeping costs affordable for taxpayers.  It will lower the City’s annual costs now and in the future, immediately reduce the $7.8 billion unfunded pension liability by more than 30 percent, set a hard 30-year payoff date for the remaining debt and force a return to the negotiating table, and automatic changes if no agreement is reached, if annual pension costs exceed pre-agreed limits.

The three pension systems crafted changes in benefits for each of their respective retiree groups.  These include scaling back cost-of-living adjustments, higher employee payroll contributions and phasing out of the Deferred Retirement Option Plan, known as DROP, which allows employees to begin receiving retiree benefits while continuing to work for the City.  The benefits adjustments will be coupled with strict adherence to the following management and investment principles: 

• Utilization of a 30-year fixed payoff period for the remaining $5.3 billion in unfunded pension liability that includes significant cost avoidance from what would have to be paid in the absence of reform
• Recognition of all investment gains and losses as of June 30, 2016, for all three pension systems
• Requirement to fully fund each pension system on an annual basis
• Adoption of a more conservative  seven percent assumed rate of return on pension investments
• Issuance of  $1 billion in pension obligation bonds to make up for years of prior underfunding of HMEPS and HPOPS – inclusion of this provision was required by HMEPS and HPOPs in return for the benefit concessions they put on the table
• Improved information sharing between the City and pension systems for better projection of pension liability to ensure compliance with the required pay down timeline
• A mechanism to control rising future costs

“I want to thank the employee groups for recognizing that maintaining the status quo is not an option if we are to be able to continue to meet our pension obligations to employees and our responsibility to provide services to a growing population,” said Turner.  “I appreciate the service and dedication of each City worker, and I am committed to ensuring they have secure and sustainable pensions on which they can rely.  I am also committed to delivering pensions that do not require us to increase taxes. This plan meets both commitments while permanently solving our pension issues.”

City Council approval would clear the way for the City to move forward in partnership with the pension systems to seek legislative approval of the package of reforms.  Bill filing for the 2017 legislative session begins mid-November 2016.